Inside A Year Of Uncertainty

Inside A Year Of Uncertainty

THE LESSONS ONE PRIVATE LENDER LEARNED DURING COVID ARE LAYING THE GROUNDWORK FOR HOW IT OPERATES GOING FORWARD.

By JEFF TESCH, SPECIAL TO MORTGAGE BANKER MAGAZINE

March 2020 was a month that started with problems that had been building for months. RCN Capital was growing fast but not fast enough to keep up with demand. In the private lending industry, we focus on lending directly to customers acquiring one- to four-family homes for investment purposes. As the CEO of one of the nation’s largest lenders in this space, our ten-year-old company was bursting at the seams as all of the hard work put in by our amazing team was paying dividends with record demand for bridge lending as well as 30-year loans for aggregation of rental properties. These were good problems to have all things being equal.

Our Connecticut-based management team had heard of the pandemic, but it truly seemed a world away. There always seemed to be some virus threat from overseas but the United States always seemed to handle it without too much disruption to commerce. As we all know, that turned out to be very much wishful thinking. On March 16th, 2020 we sent just about our entire workforce remote to protect them from any outbreak in our main office in Connecticut as well as our satellite office in Charlotte. This was the first test for our management team as well as our RCN family as a whole.

TALK, TALK, TALK

Like other employers, the steps we took to make sure the company ran as business as usual were critical at that stage. Communication within each department, but even more importantly from management to the employees, happened daily. I can not stress how important it was that all the employees had at a minimum, at first, conference calls, and very soon into the new normal, video calls three times a week. I made sure that I was on at least one video call inside every department every week to provide updates and answer questions.

As a very close-knit company, it was just bizarre not being able to see each other in the office. The OVER communication that we mandated was truly a lifesaver for morale. I highly encourage all business leaders to get in the weeds with how each manager communicates with their team and make sure that it is more than would be expected in any normal business situation.

FISCAL FREEZE

As if going remote was not bad enough, the very next week the pandemic caused a complete freeze of the capital markets as it relates to the securitization of our two main loan products -- both the short-term bridge and the long-term rental. In layman’s terms, our ability to be able to sell our closed loans to access the long-term debt markets was completely cut off. Yes, we have warehouse lines supplemented by a great deal of our own equity but this was uncharted territory. By the end of March, like many other private lenders in our space, we made the very difficult decision to pause all origination of loan products.

The next lesson, which is a good lesson for all leaders, was that RCN benefited from the ultra-transparent communication we had with our customers, brokers, and correspondent lenders as to exactly what was happening.

Yes, we told them we were not funding and why we were doing exactly that. Many folks in the lending industry chose a different path of pretending to be lending when there were not, but we as a company generated a tremendous amount of goodwill with our partners by being transparent. That lesson, while hard to execute at the time, is one that every leader can use for future challenges in the marketplace.

Internally we decided from day one in the pause in lending to double down on not only our core company mission but our employees as a whole. The employees were scared, heck we were all scared at the time. The key, as I look back at it was an unwavering belief that if we kept the employees, and I mean all the employees, working on our process as a company so that when we resumed lending we would be stronger than ever.

We spent the next ten weeks working on every single area of RCN Capital from loan intake all the way to servicing. The most important aspect of it all was to just keep working. That was a luxury we had with our strong balance sheet and a company culture of mutual support no matter what.

EASING BACK IN

By mid-June, the housing data showed housing values not only stabilizing but rising in many markets and rent collection extremely strong for our single-family rental loans. At this point, I knew we were going to be back and poised to grab market share.

At first, rates were a little higher and some leverages a little lower but the appetite was strong for our products. As we really started to ramp up it was so heartening to hear so many of our partners thanking us for keeping in close touch with them and quickly getting the product updates they need to run the brokerages and lending shops.

The true value of these relationships was the support that we offered each other in those darkest of hours. Not only picking up the phone to say hello but the picking up the phone to ask how are you holding up? The simple act of that phone call continues to pay huge dividends for our company today. I urge all leaders to think about the power of that phone call and ways you can leverage it in your own business today.

Once again we are back to the problems that had been building for months. RCN Capital is growing fast but not fast enough to keep up with demand. Private lending non-owneroccupied loans are in demand like never before. The securitization market seems to have an insatiable appetite for our loan products. The market today is as if 2020 never happened. As a leader that has spent the last ten odd years building such a vibrant organization, nothing could be further from the truth. The lessons learned will last a lifetime.

Jeffrey Tesch is Chief Executive Officer of South Windsor, Conn.-based RCN Capital.